12.

Equity Incentive Plan

The Anika Therapeutics, Inc. Stock Option and Incentive Plan, as amended, (the

“2003

Plan”) provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units, and SAR’s to employees, directors, officers, and consultants. The

2003

Plan was originally approved by the Board of Directors on

April

2003,

approved by the Company’s shareholders on

June

2003,

and reserved

1,500,000

shares of common stock for grant pursuant to its terms.

May

29,

2009,

the Board of Directors approved changes to the

2003

Plan and adopted the Amended and Restated

2003

Stock Option and Incentive Plan (the “Amended

2003

Plan”) to increase the number of shares available to grant by

850,000.

The Amended

2003

Plan was approved by the Company’s shareholders on

June

2009,

and it resulted in a total of

2,350,000

shares of common stock being reserved for issuance under the Amended

2003

Plan.

At the

2011

Annual Meeting of Stockholders on

June

2011,

the shareholders of the Company approved the Anika Therapeutics, Inc. Second Amended and Restated Stock Option and Incentive Plan (the

“2003

Plan”), which, among other things, increased the number of shares reserved for issuance under the Company’s predecessor stock option and incentive plan by

800,000

3,150,000

shares. Pursuant to this amendment and restatement to the

2003

Plan approved by the Company’s shareholders, each share award issued after

June

2011

other than stock options or stock appreciation rights will reduce the number of total shares available for grant by

1.9

shares.

At the

2013

Annual Meeting of Stockholders on

June

18,

2013,

the shareholders of the Company approved an additional amendment to the Amended

2003

Plan, which, among other things, increased the number of shares reserved for issuance under the Company’s stock option and incentive plan by

650,000

3,800,000

shares. Pursuant to this amendment and restatement to the

2003

Plan approved by the Company’s shareholders, each share award issued after

June

18,

2013

other than stock options or stock appreciation rights will reduce the number of total shares available for grant by

1.5

shares. There are

0.9

million shares available for future grant at

December

31,

2016.

The Company

may

satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly-issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over

one

four

years.

The Company estimates the fair value of stock options and SAR’s using the Black-Scholes valuation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares. Key input assumptions used to estimate the fair value of stock options and SAR’s include the exercise price of the award, the expected award term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the award’s expected term, and the Company’s expected annual dividend yield.

The Company uses historical data on the exercise of stock options and other factors to evaluate and estimate the expected term of share-based awards. The Company also evaluates actual forfeiture rates periodically and adjusts the expected forfeiture rate assumption within the model accordingly. The expected volatility assumption is evaluated against the historical volatility of the Company’s common stock over a

four

-year average, and it is adjusted if there are material swings in historical volatility. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grant.

The fair value of each stock option during

2016,

2015,

and

2014

was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	December 31,
	2016			2015			2014
Risk free interest rate	0.94%	-	1.55%	1.15%	-	1.46%	1.16%	-	1.39%
Expected volatility	47.33%	-	51.61%	53.15%	-	54.65%	53.28%	-	57.05%
Expected life (years)		4.5			4.5			4.0
Expected dividend yield		0.00%			0.00%			0.00%

The Company recorded

$3.4

million,

$2.2

million, and

$1.6

million of stock-based compensation expense for the years ended

December

31,

2016,

2015,

and

2014,

respectively, for stock options, SAR’s, RSA’s and RSU’s. The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

	December 31,
	2016		2015		2014
Cost of product revenue	$	148	$	42	$	61
Research & development		467		269		202
Selling, general & administrative		2,777		1,914		1,344
Total stock-based compensation expense	$	3,392	$	2,225	$	1,607

Combined stock options and SAR’s activity under the Company’s plans is summarized as follows for the years ended

December

31,

2016

and

2015,

respectively:

	2016					2015
	Number of Shares			Weighted Average Exercise Price Per Share		Number of Shares			Weighted Average Exercise Price Per Share
Options and SAR's outstanding at beginning of year		762,260		$	18.75		851,287		$	14.85
Granted		354,275		$	40.77		111,625		$	39.25
Cancelled		(58,841	)	$	30.05		(85,349	)	$	19.77
Expired		(3,310	)	$	11.37		(8,825	)	$	20.03
Exercised		(74,815	)	$	15.46		(106,478	)	$	10.96
Stock options and SAR's outstanding at end of year		979,569		$	26.15		762,260		$	18.75

Of the

979,569

stock options and SAR’s outstanding at

December

31,

2016,

903,076

are vested or are expected to vest, with a weighted-average exercise price of approximately

$24.92

as well as an aggregate intrinsic value of approximately

$21.7

million related to these awards. The weighted average remaining contractual term of the vested and expected to vest stock options and SAR’s was

6.8

years as of

December

31,

2016.

As of

December

31,

2016,

total unrecognized compensation costs related to non-vested stock options and SAR’s was approximately

$5.0

million and is expected to be recognized over a weighted average period of

2.8

years.

There were

144,316

incentive stock options exercisable at

December

31,

2016

with a weighted-average exercise price of

$10.22

and a weighted-average remaining contractual term of

4.7

years for these awards.

There were

281,093

non-qualified stock options exercisable at

December

31,

2016

with a weighted-average exercise price of

$15.61

and a weighted-average remaining contractual term of

5.7

years.

There were

7,065

performance awards exercisable at

December

31,

2016

with a weighted-average exercise price of

$39.69

and a weighted-average remaining contractual term of

8.1

years for these awards.

There were

40,250

SAR’s exercisable at

December

31,

2016

with a weighted-average exercise price of

$6.94

and a weighted-average remaining contractual term of

2.8

years for these awards.

The aggregate intrinsic value of stock options and SAR’s fully vested at

December

31,

2016

and

2015

was

$16.7

million and

$11.6

million, respectively. The aggregate intrinsic value of stock options and SAR’s outstanding at

December

31,

2016

and

2015

was

$22.3

million and

$15.2

million, respectively.

The total intrinsic value of stock options and SAR’s exercised was

$2.1

million and

$3.1

million for the years ended

December

31,

2016

and

2015,

respectively.

The total fair value of stock options and SAR’s vested during the years ended

December

31,

2016

and

2015

was approximately

$1.3

and

$1.1

million, respectively.

The Company received

$1.0

million and

$1.1

million for exercises of stock options during the years ended

December

31,

2016

and

2015,

respectively.

The RSA and RSU activity for the years ended

December

31,

2016

and

2015

is as follows:

	2016					2015
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at Beginning of year		150,384		$	34.29		109,614		$	23.91
Granted		87,158		$	38.11		81,080		$	37.84
Cancelled		(4,950	)	$	36.20		(10,635	)	$	32.02
Expired		-		$	-		-		$	-
Vested/Released		(25,515	)	$	33.35		(29,675	)	$	19.31
Nonvested at end of year		207,077		$	36.44		150,384		$	34.29

The total fair value of RSA’s and RSU’s vested during the years ended

December

31,

2016

and

2015

was

$1.0

million and

$1.2

million.